Self-schooled in finance and unschooled in economics, I was very glad to be sent a link to Hayek’s Nobel Prize acceptance lecture. I’ve read around him, but not much in the original. One of these days …
As I read it, one of his many important points is the following:
Traditional quantitative science models rest on a basis one level down of either accurate theories (Maxwell’s equations, say, as I mention in my book) or reliable heuristics. In contrast, quantitative economic or social science models have no reliable base to rest on; neither theoretically accurate nor empirically reliable ones. And, at the bottom of the social science chain are individuals, about whom very little that is quantitatively reliable is known. With individuals at the bottom of the tree, models of complex phenomena in society are going to be wrong. And therefore, social planning based on such models will inevitably go badly awry. Therefore, don’t theorize and act on the wrong theories of complex things you didn’t create and don’t understand.